ECB asks banks not to pay dividends until Oct 2020

Frankfurt: The European Central Bank on Friday asked eurozone banks to freeze dividend payments "until at least October 2020" to preserve liquidity that can be used to help households and companies through the coronavirus crisis.

The Frankfurt institution also asked banks to not to buy back shares, another tool to reward shareholders, at a time when countries and central banks are taking unprecedented steps to support the global economy.

"The ECB expects banks´ shareholders to join this collective effort," it said in a surprise statement.

The measures would "boost banks´ capacity to absorb losses and support lending to households, small businesses and corporates during the coronavirus (COVID-19) pandemic", it added.

The ECB´s proposal, which would affect dividends for the financial years 2019 and 2020, echoes that of the Brussels-based European Banking Federation which earlier this week said "listed banks should not accrue dividends or undertake share buybacks so as to maintain maximum capital preservation" during the crisis. While many eurozone banks are likely to suspend their 2020 dividend payments as companies, some have already paid out those for 2019 or have committed to doing so.

The ECB said its recommendation did not ask banks to cancel those payouts, but banks whose shareholders are slated to vote on dividend proposals in upcoming annual meetings "will be expected to amend such proposals in line with the updated recommendation".

After initially facing criticism for not taking enough action in the coronavirus fightback, the ECB has in recent weeks unleashed a flurry of measures to support the 19-nation euro area.

That includes a "big bazooka" scheme to buy an additional 750 billion euros ($832,000 billion) in government and corporate bonds to keep cash flowing through the financial system.

The ECB has also launched a fresh round of ultra-cheap loans to banks and eased rules on capital buffers to encourage banks to offer loans to households and businesses. The central bank has said there would be "no limits" to its commitment to protecting the euro.